Moody’s Investor Service, a renowned credit rating agency, has issued a warning to Pakistan, stating that the country could face the risk of default if it fails to secure an International Monetary Fund (IMF) program. As reported by Bloomberg, Pakistan’s financing options beyond June are deemed “uncertain” by Moody’s.
Grace Lim, a sovereign analyst with the ratings company in Singapore, expressed concerns about Pakistan’s ability to meet its external payments for the current fiscal year, which is set to end in June. Lim stated, “However, Pakistan’s financing options beyond June are highly uncertain. Without an IMF program, Pakistan could default given its very weak reserves.”
The prevailing political tensions in the country, particularly ahead of the upcoming elections, further increase the risk of a delay in securing the loan. Former prime minister Imran Khan’s refusal to back down against the government adds to the complexity of the situation.
Pakistan’s coalition government is currently facing challenges in reviving a $6.5 billion IMF bailout program, which had previously stalled due to the government’s failure to meet certain loan conditions.
On Tuesday, the country’s dollar bonds due in 2031 were indicated at 34.58 cents on the dollar, close to their lowest point since November. Additionally, the Pakistani rupee has been trading near a record low, adding to the economic concerns.
Moody’s analyst Grace Lim emphasized that engaging with the IMF beyond June could provide additional financing opportunities from other multilateral and bilateral partners, potentially reducing the risk of default. However, she highlighted the alarmingly low level of Pakistan’s foreign-exchange reserves, which currently stand at $4.5 billion and are sufficient to cover only about one month of imports.
S&P Global Ratings also expressed concerns about Pakistan’s financial situation, estimating that the country’s gross external financing needs, as a proportion of current-account receipts plus usable reserves, are expected to rise to 139.5% in fiscal year 2024 from 133% in 2023.
Andrew Wood, a sovereign analyst at S&P in Singapore, stressed the importance of the IMF program as a foundation for crucial fiscal policy reforms. Wood further suggested that reaching an agreement on the current review cycle could instill more confidence among other bilateral and multilateral lenders to provide support to Pakistan.
